Commodities. Oil and Gold Daily - September 4, 2017

> Oil stable; global upstream losses offset by damage to US refining sector. On Friday, the new front-month Brent contract (November) traded steadily around $52.5/bbl after its surge to this level from $50.5/bbl early on Thursday. It closed $0.11/bbl lower at $52.75/bbl. Brent was pushed closer to $52/bbl this morning as investors fled to haven assets following the escalation of the North Korean conflict (see the gold section for more). Oil has seen major support from production losses in several countries, including Libya. The drop in Libyan output, which we discussed last Monday, was reflected in preliminary August OPEC production estimates published by Reuters on Thursday. On Saturday, the Russian Energy Ministry released August production figures showing output down 0.04 mln bpd to 10.91 mln bpd, a YTD low. The decline owed to maintenance at offshore fields in the Arctic that is expected to end in October. Meanwhile, numbers showing the impact of Hurricane Harvey on the US upstream sector continue to emerge. The latest data from the BSEE showed that only 0.096 mln bpd of production remained offline (out of the 1.75 mln bpd Gulf Coast total), down from nearly 0.43 mln bpd on August 26. Previously evacuated workers have returned and production has resumed at many sites. The total volume of crude output lost as a result of the storm is currently estimated at 2.97 mln bbl.
The impact of oil supply disruptions continues to be offset by the damage to the US refining sector, though US refineries (which had reduced runs by nearly a quarter) and midstream infrastructure began to recover from severe flooding over the weekend. However, it could be some time before the industry fully recovers. We would also like to once again emphasize that Harvey's impact on the US oil industry will be heavily traded in the middle of this week, when US inventory data comes out. We assume prices will be pressured by a buildup in crude inventories, as we expect the decline in consumption to outpace the drop in supplies.
> North Korea takes center stage amid diminishing rate hike expectations. Late on Friday, gold prices surged almost $5/oz to just above $1,325/oz after it was announced that US employment and wage growth had slowed in August, turning out even lower than expected. Nonfarm payrolls were up by only 156,000 in August, compared with the 180,000 additions expected by the consensus, while hourly earnings increased 2.5% y-o-y, below the 2.6% consensus forecast. The argument that a tightening labor market and rising wages will create upward pressure on inflation and GDP growth has been an important one in support of another Fed rate hike this year; but, after the latest data, traders have started to assume that the next hike will come no earlier than mid-2018. This is bullish for gold, a non-yielding asset, which will remain attractive for as long as it looks like the Fed will put off another hike until next year. Today, gold added to Friday's gains after North Korea tested what was reported to be a hydrogen bomb over the weekend. We wrote last week that the $1,340/oz resistance level could be broken if the situation were to heat up again. We now expect it to be broken later today.